The EU – China trade treaty- Shocking Developments : Dangerous liaisons that may have far reaching consequences


The EU – China trade treaty- Shocking Developments : Dangerous liaisons that may have far reaching consequences

Something shocking happened in past few days as the European Union chose to ignore everything against China and moved further to signing a big Comprehensive Agreement investment (CAI) treaty with the dragon. It must be noted that the EU has always stood for humanitarian issues, values and ethics and the recent behaviour of China in Hongkong, Xinjiang, India, Australia etc should have been a case of confirmation of Chinese dark intentions to deal with China. However the fact that despite all such development in past one year , European Union has gone ahead and signed the treaty should be a cause of concern to the world by and large. For that will definitely be a big boost to China for multiple reasons , from getting a certificate of her actions in recent past to strengthening her footholds in Europe.

A very hard hitting article has come in the Financial Times which discusses this EU-China treaty.

The EU-China deal was pushed hard by Angela Merkel, the German chancellor, and concluded right at the end of her country’s presidency of the EU. Ms Merkel is seen as a champion of liberal values. But her approach to China is largely driven by commerce. She knows that the German car industry has had a rough few years, and China is its largest market. (FT).

Ms Merkel’s determination to press ahead may also reflect her own scepticism about the future of the US. In a speech in 2017, she said that Europe could no longer rely on America. The election of Mr Biden has probably not changed that view. Many Europeans also believe that the US is on the brink of a new cold war with China — and want little part of that.

While some of the logic of EU and Merkel may be valid it is still a weak logic. But relying on an American security guarantee in Europe, while undermining American security policy in the Pacific, does not look like a wise or sustainable policy over the long run.

The EU says that this deal will “discipline the behaviour” of China’s state-owned enterprises, which will now be required “to act in accordance with commercial considerations”. But China made very similar commitments when it joined the World Trade Organization in 2001. Also Chinese record of obeying international treaties has a poor record.

The Europeans are also kidding themselves if they think they can be blind to the increasingly authoritarian and aggressive nature of Xi Jinping’s China. For the past 70 years, Europeans have benefited from the fact that the world’s most powerful nation is a liberal democracy. If an authoritarian nation, such as China, displaces America as the dominant global power, then democracies all over the world will feel the consequences. Even in the current geopolitical order, China has repeatedly demonstrated its willingness to use its economic power as a strategic weapon. By deepening their economic reliance on China — without co-ordinating their policy with fellow democracies — European nations are increasing their vulnerability to pressure from Beijing. That is a remarkably shortsighted decision to make, for a “geopolitical commission”.

President elect Joe Biden has shown his willingness to talk to all US partners before taking a stance on China and on other issues. Therefore this move of EU will further constraint the US President elect going forward. The US reputation has taken considerable beating and any further actions that boosts China will be major hit against her and global interests.

Chinese foreign direct investment (FDI) into the EU has increased exponentially over the last few years, primarily directed to the strategic areas of infrastructure and high technology. According to European Commission data, cumulative flows of Chinese FDI into the EU amounted to almost 120 billion euros. However, EU investment into China was even higher, at more than 140 billion euros. About half of EU FDI in China is in the manufacturing sector, with the German automotive industry as the main investor.

While on the EU side Merkel has been instrumental in clinching the deal before her presidency of EU comes to an end thereby saving the German automobile industry which has a big market in CHina, Xi Jinping also made personal appearances and concessions to seal the deal. But then, the treaty is seen by many strategic experts as a clear way of a developing wedge between US and European Union which is not a good sign.

For China, the EU market is already open to investment with very few restrictions. The CAI will improve access to some manufacturing sectors and to the energy sector, including renewables, but will fall short of facilitating investment in nuclear energy. As the European Commission stated, “EU sensitivities, such as in the field of energy, agriculture, fisheries, audio-visual, public services, etc. are all preserved in CAI.” In addition, the EU FDI screening mechanism and the 5G toolbox are still standing.

The agreement now needs to undergo “legal scrubbing” and to be signed by the two sides, before it is ratified and enters into force. On the EU side, it will have to be ratified by the European Parliament (there is no need for ratification by the national parliaments of the EU member states). This process is estimated to take around one year. In addition, China and the EU set themselves a two-year deadline for the conclusion of negotiations on an additional investment protection agreement. ( Diplomat).


Coming at a very important junction the Comprehensive Agreement on Investments (CAI) treaty will pose new challenges for India. It was expected that after the Covid – Wuhan fallover India will be in a position to leverage the distrust between EU and China to her benefit. But that will prove to be a wishful thinking now as the EU action will boost Chinese economy and investments once it is ratified. There is still time for India to up the ante and press the pedal. However to do that it has to work on a mission.

WE have recently seen that the shifting of manufacturing companies outside China was also like a missed Bus by India. While there was initial brouhaha in Indian commerce industry nothing much has come out. Most of the companies have moved to south asian countries and just a handful have invested in India.

Such a situation is not good if India has to counter China strategically and economically. China has used her economic powers very well. recently it used the same strategy to pressurise Australia with ban on number of imports from Australia. IT ha also used her money power to blackmail Sri Lanka, pakistan and other countries.

All these developments therefore does nt bode well for India. India has to wake up to the new reality. It has to shed her mediocore policy of working and get more focused and action oriented. We are wasting time over nothing. Those in high power of seats think themselves too arrogant to talk to others.

We are indeed worried with the new developments and state of affairs in the country.

Dr Asheesh Shah

Asheesh Shah
Author: Asheesh Shah

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